• Mon
  • Dec 29, 2014
  • Updated: 11:28am
My Take
PUBLISHED : Monday, 26 May, 2014, 3:43am
UPDATED : Monday, 26 May, 2014, 3:43am

Hong Kong economist offers sobering thoughts on corruption in China

Is corruption in China out of control? Many people would say yes. Some would say no. A few, including myself, would say I don't know.

Corruption in China has always been a prime news item but especially so now that the anti-corruption campaign by President Xi Jinping has gone into overdrive.

In his personal blog, University of Science and Technology economist Francis Lui Ting-ming recently offered a fascinating insight.

The professor begins with an observation often repeated on the mainland: The failure to crack down on corruption would lead to the nation's collapse; but to really crack down on corruption would lead to the Communist Party's collapse.

Lui thinks this is vastly exaggerated. After all, Lui implies that many Chinese only know about corruption in their own country and no others, so they have no point of comparison.

Meanwhile, many Western democrats think China is corrupt because it is not Western and is undemocratic. But this is inadequate because corruption exists in Western and/or democratic societies.

The question at the start of this column is the title of a 2012 study by George Mason University economist Carlos Ramirez, which Lui cites in his blog.

Ramirez compares corruption in China since 1996 with corruption in the US between 1870 and 1930. The reason is that he tries to compare like with like: Real income per capita in late 1990s China and the 1870s US stood at US$2,800 (in 2005 US dollars).

He then uses corruption indices to measure both countries, which indicate corruption in the US in the 1870s was seven to nine times higher than it was in China in 1996. By the time the US reached US$7,500 in 1928 - roughly equivalent to China's real income per capita in 2009 - corruption was similar in both countries.

Ramirez concludes that corruption in China is not high by the historical experience of the US. Both countries follow the "life-cycle" theory of corruption, "rising at the early stages of development, and declining as modernisation [gains pace]". Most economists agree that as China continues down the path of development, corruption will likely decline.

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wailunscmp
Flawed comparisons by the boffins; using statistics to make non-sensical correlation. The US and China have very different political system so the comparison is flawed from the beginning. The US like most western countries rest on the cornerstone of an independent judiciary and the rule of law whereas in China, the CCP stands supreme over all. The west has the separation of the Executive and Legislative while in China the latter is subservient to the former and the CCP. the comparison is flawed. The US and the western countries has a mature political system that allows it grow, improve and heal itself over time but China's totalitarian model remains unproven as China only started it's economic reform in 1992 and political reform has totally stalled since 1989. In China, corruption is a 5000 year old disease that is a major part of life here
VicSexton
"In his personal blog, University of Science and Technology economist Francis Lui Ting-ming recently offered a fascinating insight" - He may well have done, but I'm b*ggered if I can find it in this article.
johnyuan
Corruption – passing or receiving money unlawfully, I believe not just a phase in economic development for a country.
.
Read today’s China Briefing by Wang Xiangwei, China’s corruption has very much to do with political ideology. Mao’s ideology pays little to government officials including doctors and teachers with the notion that to serve the people is glory.
It has vastly proven unworkable.
.
Especially nowadays when China with its population is expanding beyond its border.
kctony
One party rule breeds corruption, proven in our 5,000 years history..
Democracy gives people hope and they work harder.
Then China takes another step forward economically and becomes a real strong nation.
For China to be democratic, corruption must subside first.
Not in this generation of course because the corrupted are protecting their interests
A fully democratic China is not what the Americans want.
That is why they embrace the current system.
I admire Ji's determination in his attempt to weed out corruption.
He may not be successful but his successors will some day.
I won't see that day either but my next generations will.
321manu
On some level, it makes some sense to think that "corruption" might decline as per capita GDP goes up. If you can afford the basic necessities of life doing things by the book, the need to break the rules might be less.
However, corruption isn't always just to ensure survival. There is a component of greed, and of the need to keep up with the Joneses. Those may be more immune to changes in per capita GDP.
Also, in comparing China with historical snapshots of the US, "cultural" aspects and the political will for enforcement are not necessarily the same. Assuming the trend to follow US patterns with progressive rise in per capita GDP might represent the absolute best case scenario, but there would be a huge confidence interval, the lower end of which is likely not pretty.
Also, there is a difference between the "rate" or "index" of corruption, and the prevalence of corruption. Even with the same "index" of corruption as a historical US sample, there would still be much much more corruption in absolute terms (by the factor of 1.3billion vs whatever the US population was at whatever historical point in time). I'm not sure PRC citizens would or should be pleased that their corruption rate matches the US circa 1928..
chaz_hen
The Chinese invented corruption 4,987 years ago...
321manu
Retired generals might also know a thing or two about what the military needs, and can help advise military contractors on product pipeline and product development based on their rather unique expertise. Do you have anything besides innuendo to suggest that such appointments are based on corrupt quid pro quo arrangements?
And as others have noted, what China really lacks is the rule of law to police such behaviour, and the lack of will for enforcing any flimsy rules that might be in place. I mean, living beyond your means is an obvious, easy, and basic red flag. Any cadre sending their children to US universities should have a lot of explaining to do...yet they don't.
You seem to be a big fan of the CCP system, their "consensus" culture, their "diversity of inputs", yada yada. Where in that "culture" is the track record for rooting out and punishing corruption (beyond the politically motivated fratricides of course)? If they have "consensus" on corruption, it seems much more tilted in the "let's all do it" direction.
BTW, Clinton makes a killing on the lecture circuit too. Does that make him "corrupt" also? Is he getting "deferred compensation" for his presidential decisions? Bernanke is paid handsomely to share his wisdom, by many different suitors. Are we to conclude that, whenever someone pays him to speak, he must have done something with fiscal policy while at the Fed that directly benefited the company sponsoring him? Do you have anything besides innuendo?
ndelre
By their own admission, corruption is a serious problem in the CCP. However, I think that maybe some of us westerners might want to take a look in the mirror, especially Americans. The only difference between corruption in China and the USA is that it is legal in the USA. The instance of government officials who retire from government in the USA and then go to work for companies or entities that they used to regulate or have previously received campaign contributions from is a daily occurrence. Political campaigns and parties can now be legally bought by the highest bidder. Can anyone really, with a straight face, say that the USA is any less corrupt than China today? It takes a different form, but the result is the same.
whymak
The only society I know that is almost free of the common definition of corruption is Mao’s China. For a nation of a billion people, this is a spectacular reality. I don’t know non Chinese mainlanders want to live there under his rule. It goes to show that when one discusses any economics subject, one must not omit its externalities.

In order not to be misunderstood, I think Mao saved China. But his subsequent draconian governance of the nation was highly flawed.
whymak
How About,
Below is an excerpt from personal email:
I agree with Professor Lui that corruption seems most common during fast economic growth. When economy is going gang busters, animal spirit dominates. Business momentum and greed easily overcome the constraints of market regulations 道高一尺魔高一丈. Rich quid pro quos and hidden profit sharing schemes could easily motivate regulators approve projects not yet vetted by due process.

When quid pro quo corruptions are stripped off their subjective moral judgments, their harm to the economy is less clear cut. In developing countries, labor and property laws are often insufficient and deficient. A private sector project highly beneficial to employment and commerce could be still born if left to the devices of perpetual debates in bureaucratic settings, not to mention cost overruns from delays.

Of course, the moral dimension argument could best be raised in terms of other economic externalities, i.e., how widespread corruption thus encouraged could raise costs, petty bribes, across all sectors in the economy. On the other side of the coin, regulations and their enforcement by administrative and statutory laws exact huge economic costs due to market participants’ compliance in addition to bureaucracy, enforcement and judiciary costs in developed countries.

Since quid pro quo corruption could never be totally eliminated, an optimal balance between economic costs and quantity of corruption is desirable.

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